New study by Prof. Shyam Balganesh: The trouble with copyright trolls

November 28, 2012

A few years ago a Nevada-based company called Righthaven LLC had a bright idea: It would find copyright owners who wanted their rights enforced, but didn’t have the financial resources to hire a lawyer and lacked the time, expertise, or desire to threaten or bring lawsuits themselves. Righthaven would acquire a limited interest in a copyrighted work, use it to sue copiers, and share the proceeds with the copyright owner.

As a matter of law, Righthaven’s business model complied with all of copyright’s formal rules. But there was a problem: The model exploited a loophole in copyright law, and the way Righthaven did business – acquiring legal rights for the sole purpose of bringing lawsuits – ran counter to copyright’s fundamental social purpose, which is to encourage creativity by granting authors the exclusive rights to reproduce their works.

The business practice pioneered by Righthaven in 2010 soon became known as “copyright trolling.” Why it is a problem and what to do about it is the subject of important new scholarship by University of Pennsylvania Law School professor Shyam Balganesh, an intellectual property expert.

Balganesh’s article, “The Uneasy Case Against Copyright Trolls,” will be published next spring in the Southern California Law Review. In it he offers a comprehensive overview of copyright trolling’s history and legal basis, and a prescription for curbing its abuses.

As a business model, Balganesh says, copyright trolling “has the potential to seal off copyright law’s implicit safety-valves, most of which aren’t written into formal legal doctrine. These safety-valves are in turn critical to free speech, creative re-use, and cultural participation.”

Balganesh’s analysis begins with a question: “If a right is violated, and its enforcement is therefore the subject of a perfectly valid legal claim, why should it matter exactly who commences the legal action, as long as the original right-holder obtains some direct or indirect benefit from the enforcement?”

The answer, and the reason that it does matter whether a creator or a third-party brings the claim, turns on a delicate balance in the way copyright is enforced. That balance is between infringements that copyright holders have traditionally ignored (because they do them no real financial harm) and the violations they have chosen to pursue (in order to protect the market for their creations). Copyright trolls – whose reason for being focuses almost exclusively on the money involved in threatening and bringing lawsuits, rather than on the works themselves – disturb that balance.

In Balganesh’s terms, trolls’ actions “convert copyright law’s previously actionable but tolerated claims into actionable and enforced ones, disrupting the implicit equilibrium” between the two categories of claims.

Copyright trolls follow in the footsteps of better known “patent trolls,” who obtain patents not to use them to make and market new products or technologies, but solely to force third parties to purchase licenses, a practice that dates to the 1990s.

Similarly, a copyright troll purchases a legal right in another’s creative work, which it then uses to threaten and bring actions for infringement against others.

“Focused almost entirely on the legal enforcement of these rights, [the troll] relies either on the threat of litigation to force a large monetary settlement, or instead proceeds to litigate its rights with the sole objective of obtaining damages from a defendant,” Balganesh writes.

Moreover, he points out, because a troll, unlike an author or creator, has no financial interest in the use of the work and depends entirely on settlements and damage awards for its revenue, it is seldom satisfied with a mere “cease and desist” order.

The possibility of copyright trolling arises from changes in the copyright law dating to 1976. Before then only creators of a work, or someone to whom they assigned rights in their entirety, could bring an action for copyright infringement. Revisions in the law enabled copyright owners to transfer partial rights, which third parties could use to bring suit. The change, says Balganesh, was a loophole “just waiting to be exploited by copyright trolls.”

It took three decades, but in 2010 Righthaven capitalized on that loophole, entering into an agreement with a newspaper publisher and aggressively pursuing claims whenever it located the use of a work – usually a blog or website reproduction of text or a newspaper photograph. Righthaven commenced more than 275 infringement cases against defendants, which typically resulted in settlements of around $3,500.

Adverse court judgments eventually put Righthaven out of business, but according to Balganesh the company’s short-lived success reveals “the somewhat shaky legal foundation on which the case against copyright trolling…was built.”

To remedy that weakness, Balganesh recommends legal reform that takes account of the difference between creator and third-party lawsuits, without entirely precluding a market for copyright claims.

“Any solution to the problem of copyright trolling needs to focus directly on policing the entity’s motives and reasons for enforcing copyright claims,” he writes.

To that end, he advocates restrictions on the availability of “statutory damages” to non-author plaintiffs by imposing on them the legal burden of showing the existence of “actual damage” or lost profits before they are able to bring an infringement action in court.